Gray Media - Earnings Call - Q1 2019
May 8, 2019
Transcript
Speaker 0
Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Grace Television First Quarter twenty nineteen Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question and answer session.
Thank you. I would now like to turn the call over to Mr. Hilton Howell, Executive Chairman and CEO. Please go ahead.
Speaker 1
Thank you so much, Kelly, and thank everyone for joining us this morning. As Kelly mentioned, I'm Hilton Howell, and I really appreciate everyone joining us for our first quarter twenty nineteen earnings call. As usual, I'm joined today by our President and Co CEO, Pat Laplatney our Chief Legal and Development Officer, Kevin Latek and our Chief Financial Officer, Jim Ryan. We will begin this morning with a disclaimer that Kevin will provide and then each of the four of us will have a brief statement and then open it up for questions.
Speaker 2
Thank you, Hilton, and good morning, everyone. Certain matters discussed on this call may include forward looking statements regarding, among other things, future operating results. Those results are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward looking statements as a result of the various important factors. Such factors have been set forth in the company's most recent reports filed with the SEC and included in today's earnings release.
The company undertakes no obligation to update these forward looking statements. Gray uses its website as a key source of company information. The website address is www.gray.tv. We also will post an updated investor deck to the website in about two weeks. Included on the call will be a discussion of non GAAP financial measures and in particular broadcast cash flow, broadcast cash flow less corporate expenses, operating cash flow, free cash flow and certain leverage ratios.
These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in their analysis and valuation of our company. We include reconciliations of the non GAAP financial measures to the GAAP measures in our financial statements that are made available on our website. I'll return the call to Hilton.
Speaker 1
Thank you very much, Kevin. We are exceptionally pleased to report the results this morning of our very first quarter as the new larger more diversified Gray Television. We're exceptionally pleased to report once again all time record news. Our total revenue for the first quarter was $518,000,000 a 129% increase. This is an exceptionally strong showing and I believe it confirms the wisdom of the Raycom transaction that we closed on the January 1.
Our profits would have been an all time high for the company, an outstanding record except for the transaction related expenses that we will cover subsequent in the conversation. Across the board, we saw continued improvement in our local business conditions that started last summer really builds during the first quarter. Recall that we had guided our Q1 core local and national ad revenue excluding the non returning Winter Olympics revenue would be approximately flat. Instead on a combined historical basis, excluding twenty eighteen Winter Olympics revenue, our first quarter local and national advertising revenue grew by $7,000,000 from the year earlier period, representing a 3% increase for the quarter. As you saw in our release this morning, our GAAP net loss attributable to common shareholders for the first quarter was $31,000,000 As we also explained in the release, the Raycom transaction necessitated the immediate expensing of $68,000,000 transaction related expenses.
Specifically, those costs included incentive and severance compensation, third party termination fees and legal, accounting, finance and other professional fees. Excluding those transaction related costs, our net income attributable to our common shareholders would have been our best first quarter ever of approximately $27,000,000 and our diluted net income per common share would have been approximately $0.27 We are again exceptionally pleased that our broadcast cash flow for the first quarter was $123,000,000 our best first quarter broadcast cash flow in the company's history. We need to be careful not to read too much into one quarter's results. Nevertheless, we take great pride in our Q1 results because it proves the wisdom of the Raycom transaction and vindicates all of the hard work and sacrifices made by all of my many colleagues here in Gray and Heritage Gray and Heritage Raycom and by our advisors over the past several months. We are off to a brilliant start as a major television broadcast group and I cannot wait to keep building on the success we are reporting today.
I'd now like to turn the call over to Pat to address a few operational milestones and the progress of our new company.
Speaker 3
Thanks, Hilton, and good morning, everyone. Today's result and our guidance today certainly paint a good picture. We saw general market conditions improve each quarter last year. While this year began slowly in part due to long government shutdown, business conditions and sentiment appear to be improving as the year progresses. We're particularly pleased that Core finished up this quarter ex Olympics, which was certainly better than we expected in February.
On our last earnings call, we announced that Greta Van Susteren joined Gray as our chief national political analyst. She hit the ground running, appearing on countless local newscasts every week from Washington. She's already provided our local newsrooms with expert unbiased coverage of national and international political developments, of which there have been many in the past few weeks. At the NAB show last month, we announced that Gray will launch a new weekly program this September called Full Court Press with Greta. This new weekend political show will focus on how policy and national events impact local communities across the country.
It will also involve a broad bench of great television journalists from newsrooms across the country, including the award winning team of Investigate TV out of New Orleans. Since that announcement, we've reached verbal commitments to clear the show from television stations across the country, including stations in the New York, Los Angeles, Chicago and San Francisco markets. Today, we have preliminary reach of 46.5% of the country for full court press, and we still have many active discussions that will ensure broad distribution for the show when it launches in September. Two weeks ago, we announced another exciting new venture. Specifically, we have entered into a joint venture with Opry Entertainment Group, a subsidiary of Ryman Hospitality Properties, to create and distribute a premier linear multicast and over the top channel dedicated to the country lifestyle.
We expect this new channel will transform the current landscape of country music media offerings by providing a dedicated home for artist driven country lifestyle programming. The new channel will deliver a premium entertainment service featuring content that highlights country music artists and the passions, hobbies and love of music they share with their fans. The new service will be based in Nashville and will be fueled by marketing and promotional resources from both companies' extensive network of media assets. We will announce a new name for the channel soon, and we expect it to launch in early twenty twenty across TV stations located throughout the country, followed by a companion premium over the top service in mid-twenty twenty. I now turn the call to Kevin.
Thank you, Pat. I began this morning with retransmission,
Speaker 2
which we know has been a key concern for media investors lately. Our retransmission revenue for the first quarter came in at $2.00 $4,000,000 This figure represents on a combined historical basis an increase of $42,000,000 or 26% over the first quarter of last year. We beat even our guidance here because of better than expected OTT and MVPD subscriber numbers as well as some catch up payments from certain providers. We guided on our last call an approximately 20% increase in gross retransmission revenue for the year. We remain very comfortable with that guide, which could turn out to be a bit cautious given the factors that led our first quarter numbers to come in a little stronger.
Yes, we are like everyone else seeing some modest sub erosion in the MVPD universe. At the same time, however, our nontraditional subscriber base has been growing faster than anticipated. In fact, our nontraditional sub count nearly doubled between the 2017 and the 2018. Moreover, we have now crossed an important milestone and that the number of monthly paid subscribers receiving a Big four channel via an OTT or direct to consumer platform now exceeds last year's decline in the number of traditional MVPD subs. Given all this, we continue to expect growth in our gross and net retransmission revenues.
We will provide guidance in our net retrans revenues once we complete our ongoing negotiations to renew our existing FOX network agreements, all 21 of which expire this June 30. Fox makes up a fairly small portion of our sub base and our total revenues, we're just not comfortable providing net returns guidance until we have full visibility into our anticipated expenses. As a reminder, already this year we entered into new long term agreements and agreements in principle renewing and extending the terms of affiliation with ABC, CBS, NBC, CW and Telemundo for all the stations acquired from Raycom as well as many of our legacy Gray television stations. Consequently, while we cannot predict the outcome of any individual discussions, we remain optimistic that a new mutually beneficial agreement can be reached with Fox to preserve the network's presence in our markets. Our business, of course, is a lot more than retransmission and networks.
The past several weeks have demonstrated too often the powerful and necessary role that local broadcasters play in our communities. This winter, which seems never to end in some parts of the country, brought light threatening blizzards at KOTA and KEVN in Rapid City, KSFY in Sioux Falls, KFYR in Bismarck, and KVLY in Fargo dedicated extensive time and resources to predict warning cover for the local communities. This spring, saw historic flooding as a critical issue basing our stations all across Nebraska as well as WVLT in Knoxville and right now KWQC in Davenport. In March, our stations in Montgomery and Columbus saved countless lives with the breathless coverage of the Lake County, Alabama tornadoes, still tragically claimed the lives of 23 people. Just two weeks ago, KY three in Springfield also went into continuous coverage and logged 5,000,000 page views as a warning covered a mind boggling 45 tornado warnings and eight confirmed tornadoes in just one day.
In these historic moments for our local communities, our stations mobilized their staff and often those from other great television stations. They replaced regular programming with live on the spot coverage. They run into storms and toward rising floodwaters, do everything in their power to look ahead, provide life saving emergency information and cover the destruction and healing that follows. In several of the instances above, our stations follow-up with on air telethons and concerts to benefit the victims. Through all these efforts, our stations demonstrate that they are not just important, but they are critical institutions in their markets.
Reporting in natural disasters is only part of the way local broadcasters serve the public interest. Every single day in every market, journalists are working hard to find and report the news, form the public and investigate wrongdoing. Sometimes those efforts are acknowledged publicly. So I'll close my remarks by highlighting some of the prestigious honors awarded to a few of our thousands of excellent journalists throughout the company. On April 22, National Headliner Awards recognized our investigative unit, Investigate TV, with two first place awards.
We also had tremendous success, in this year's regional Edward R. Murrow Awards for Excellence in Journalism. No less than 23 of our great television stations earned at least one of these coveted honors. Four stations received honors for overall excellence, highest honor given, WVUE in New Orleans with its fifth consecutive win, WAVE in Louisville, WAFB in Baton Rouge and WJHG in Panama City. In fact, WVUE in New Orleans took top honors in 10 categories tying for Merose, in the large market category.
KGMB, KHNL in Honolulu received top honors in eight categories tying for the most murals in that category. We are of course proud of the commitments to quality local journalism that is exemplified by all of the winners. We're also quite humbled, very recently when the National Association of Broadcasters Leadership Foundation announced that it had chosen six great television stations for its twenty nineteen Service to America Awards. These awards recognized outstanding public service by local broadcasters. The winning stations included the second consecutive small market winner for WCTV, our CBS affiliate in Tallahassee.
We understand that CTV winning this award for the second time in a row was the very first back to back win in the history of the awards. We are equally proud that Gray stations constituted five of the competition's six finalists in the medium market and small market categories. It's WAFB in Baton Rouge, WTOC in Savannah, KWQC in Davenport, WETT in Wilmington, WJHD in Panama City. NABLF also selected Raycon Media as one of three finalists in the Service to Community Award ownership group category. A few days ago, the Society of Professional Journalists selected WVUE in New Orleans for three Sigma Delta Chi Awards which honor exceptional professional journalism.
Society honored WVUE's investigative pieces in the 51 plus market category in three separate categories, documentary, investigative reporting, public service and television journalism. This week continue with more good news. Over the past weekend, Wisconsin Broadcasters Association chose WSAW, our CBS affiliate in Wausau, as station of the year and TV news operation of the year state of Wisconsin. The second consecutive win in both of these categories for WSAW. Meanwhile, in South Carolina, WIS, our NBC affiliate in Columbia earned an amazing 14 nominations in the Southeast Regional Emmy Competition more than any other station in the state.
WIS has now been recognized for 34 Emmy nominations in just the last three years. Its Sunrise newscast is nominated for best morning newscast in the Southeast for the fourth year in a row. Indeed Sunrise has been nominated and won each of the last three years. Several other great stations received numerous Emmy nominations in the same competition, including WREW in Augusta, Georgia and WMBF in Myrtle Beach. These are all very impressive awards with finalists and winners.
The challenges facing local journalism today, especially outside the very largest media market, are profound and growing. The finalists and winners in all these awards, not just those of great television, confirm that thousands of journalists and then lots of local media companies remain committed despite unprecedented pressures to keep their focus on impactful local journalism and to truly serving the local communities. We salute all the best to journalism across the country. With that, turn the call to Jim Ryan.
Speaker 4
Thank you, Kevin. Good morning, everyone. Our earnings release and our 10 Q were filed a little earlier this morning. I'll keep my comments on results of operations for Q1 as well as comments on Q2 to a combined historical basis. As Hilton mentioned earlier, we're very pleased with where first quarter revenue came out, especially considering the $13,000,000 of Olympic revenue we were going against from last year.
And we're encouraged that March finished stronger than had originally been anticipated. First quarter expenses were in line with our guidance. And as I've discussed in our Q4 call and as well as Hilton mentioned earlier today, our Q1 results were impacted significantly by the one time only costs associated with the Raycom merger which again included $28,000,000 of third party contract termination fees, 22,000,000 of professional fees and $18,000,000 of incentive and or severance compensation. Of those costs, approximately $36,000,000 hit our broadcast expense line and approximately $32,000,000 hit our corporate expense line. If you back out those one time only costs, then our net income available to common shareholders for the first quarter of 'nineteen would have approximated an income of $27,000,000 or about $0.27 per share.
Quickly updating everyone again on our Raycom merger synergies as we discussed on our last call as well. Payroll, we have currently taken actions to implement approximately an aggregate of $62,000,000 worth of annualized savings. That includes payroll reductions involving over 130 positions and $22,000,000 of annual compensation. Contractual arrangements terminating the national rep firm and other contract changes produced 18,000,000 to $20,000,000 of annualized savings. We're still very comfortable with the 15,000,000 of net retransmission uplift that we have talked about.
And the Raycom Aviation Unit was closed down immediately upon closing and the aircraft were sold for just shy of $3,000,000 in Q1. Those annualized savings approximate about $11,000,000 of real year over year savings in Q1 and I would expect in Q2 that year over year savings is a little higher, somewhere between 12,000,000 and $15,000,000 Turning to the balance sheet, as of March 3139, our total leverage ratio as defined in our senior credit facility was 4.86x. That was based on a trailing eight quarter operating cash flow number of $770,000,000 Aggregate principal amount of debt outstanding as of threethirty one was 3,967,000,000 Cash on hand was approximately $225,000,000 Our second quarter guidance, we anticipate revenue increasing low single digit percent with strong mid-20s growth in retransmission revenue and low single digit growth in core. Broadcast expenses are really being driven in Q2 by an increase of reverse comp of 22,000,000 to 23,000,000 principal driver.
Speaker 5
I'll turn the
Speaker 4
call back to Hilton.
Speaker 1
Thank you very much. And now Kelly, we will open up the call to any questions that anyone may have of us.
Speaker 0
Certainly. Your first question comes from the line of from Wolfe Research. Please go ahead. Your line is open. Thank you.
I have just a couple
Speaker 6
of questions. Jim, that 12,000,000 to $15,000,000 of net synergies for Q2, I guess, is that net? Or are there any other onetime expenses you need to think about that may hit either corporate or broadcast OpEx?
Speaker 4
We said in our guidance that we expect in Q2 maybe about $1,000,000 of OTO related to the merger in the broadcast line and somewhere between 1,000,000 and $2,000,000 in the corporate line. There would be some more OTO coming later in the year as we make additional progress on reaching our $80,000,000 worth of total synergies, which we feel very comfortable about obtaining on an annualized basis. But that would be Q3 and Q4 and we'll talk about that as we get to our Q2 call.
Speaker 6
Okay. For the new channels that you're launching, how should we think about investment spend on those throughout the year?
Speaker 4
It's de minimis. I would describe it as immaterial and any investments, especially in the joint venture with Ryman, would be over a two to three year period. So we're very excited and Pat can speak more to the project. But from a cash investment standpoint, it's not a material event for us.
Speaker 6
Okay. And then Kevin, with Fox, can you remind us when this is up? And I couldn't tell from your comments if you're already talking to them.
Speaker 2
We started talking with all the networks some time ago. We got the other negotiations done pretty quickly. FOX is always, in my experience, just taking a lot longer and usually goes up to and sometimes past the deadline with extensions. So all 21 of our affiliations are up on June 30 year, which is sort of the typical expiration date for a FOX contract. They typically do expire on June 30 for most companies.
Speaker 6
Okay, thank you.
Speaker 1
Thank you, Marcy.
Speaker 0
Your next question comes from the line of Kyle Evans from Stephens. Please go ahead. Your line is open.
Speaker 7
Hey, Jim. You ripped through those $62,000,000 in synergies. I'm sorry. Would you mind kicking through those one more time a little bit more slowly? And then I've got some follow ups.
Speaker 4
Yes, sure. So $28,000,000 is contract termination fees. Dollars 22,000,000 would be professional fees, so that's bankers, lawyers, everybody else that gets paid in a large deal, accountants, and $18,000,000 of a combination of incentive pay and or severance stemming from the merger.
Speaker 7
Great. Thank you.
Speaker 4
And as I said, 36,000,000 of that hits the broadcast line in Q1 and about $32,000,000 hits the corporate expense line in Q1.
Speaker 7
Great. You mentioned low singles on core pacing in 2Q. Could you dive down and just kind of tell us what's driving that there with some specific commentary on auto, please?
Speaker 4
Auto has continued to be sluggish. Maybe Pat has will add a little more color for that.
Speaker 3
Sure. Yes, would say auto is sluggish, although we're seeing pretty strong performance out of legal and financial. In fact, both are really very strong relative to the past few quarters, but auto continues
Speaker 8
to be weak.
Speaker 4
As we talked about on our Q4 call, we mentioned that Ford spending was off this year. We think that's due to their product line shift from sedans to trucks and SUVs. So we are seeing that a little bit. As we've commented several times over the last few calls, Dodge, Chrysler, Jeep continues to be challenged by all their product issues.
Speaker 7
Where do you think auto shakes out for the year?
Speaker 4
It's off to a slow start first half of the year. So I think it's I know exactly where it shakes out, but it's not going to be don't think quite as robust for us as we originally had hoped.
Speaker 7
Okay. And I'm not looking for real detail here given that digital is no longer its own segment, but just curious as to kind of what you're seeing underlying in digital as it's embedded in your local national core.
Speaker 4
We're seeing continued growth there.
Speaker 7
Low single, mid single, high single, just
Speaker 4
Low, doublish.
Speaker 5
Okay.
Speaker 7
Great. I'll hop back in the queue. Thank you, guys.
Speaker 5
Thanks, Colin.
Speaker 0
Your next question comes from the line of David Hebert from Wells Fargo Securities. Please go ahead. Your line is open.
Speaker 9
Hi, everyone. Thanks for taking the question. I wanted to ask about the some of the adjustments or the one time only costs you laid out. If I had those back, the severance, the third party contract and the professional fees, get about 147,000,000 I guess what I'd call EBITDA. But then your allowance for the credit agreement seems to be more limited.
I think you reported a little over $100,000,000 there. So just wanted to understand the distinction between Yes.
Speaker 4
You are perceptive. The credit agreement, the way the definition works, we're allowed to add back the $22,000,000 of professional fees that we incurred around the merger. I'm not allowed under the strict definition to add back the $28,000,000 of third party contract termination fees nor the $18,000,000 of incentiveseverance comp. So you can add I mean everybody has those data points and you can add back as appropriate because they are definitely one time only costs and they're in our rearview mirror at this point.
Speaker 9
Okay. So if that's the case, I mean I guess I can say at liberty then, the 4.86x slightly overestimates your leverage. Is that accurate if I were to add back all those costs?
Speaker 4
Yes. As a matter of fact, if you do those add backs, it's more like a 4.74x rather than the 4.86x that the strict definition makes us adhere to.
Speaker 9
Okay. And then in looking at your operating expense guidance for the second quarter, just looking through the various items, I estimated 2,000,000 to $3,000,000 of one time expenses that you expect to incur in the second quarter. Is that accurate?
Speaker 4
Yes. That is what our guidance indicated. And as I mentioned a few minutes ago, I would anticipate that there's going to be more OTO costs sometime in the third or fourth quarter as we continue to move forward in the year and get the full $80,000,000 of annualized synergies that we had promised nearly a year ago when we first announced the deal.
Speaker 9
Okay, understood. And then lastly, on the leverage trajectory here, I think you in the past, you've said in the mid four times area by the end of this year and then the mid three times area by the 2020, do you anticipate any changes to those levels?
Speaker 4
What we have said, to say it slightly differently, is we think we will be lower in the 4s by the end of this year. And I would anticipate right now that's south of 4.5. And we will definitely be somewhere comfortably in the 3s at the end of next year. I don't think we've quite characterized where I wouldn't describe it as necessarily low 3s, but comfortably in the 3s.
Speaker 9
Okay. Even better. All right. Thank you.
Speaker 2
Thank you.
Speaker 0
Your next question comes from the line of Dan Kurnos from Benchmark. Please go ahead. Your line is open.
Speaker 8
Great, thanks. Good, I guess, it's afternoon now. Kevin, look, don't want to be cynical or whatever. I know you guys have said that the outlook might be a little bit cautious. But based on Q1 and your guide, and obviously, we've had some love to get your thoughts on this.
You kind of alluded to it in your commentary. We had Nexstar also mentioning that some of the vMVPDs have moved more aggressively down market. So I'm wondering if that's part of the reason why you're seeing some of the upside here. But you would need obviously some kind of sub attrition baked in or a reset of rate, which can obviously happen with timing in order to get back down to your original guide. Just maybe any additional color you could provide around how you're thinking about retrans over the balance of the year would be helpful.
Speaker 2
Last call we said we expected gross would be up about 20% for the year. We think that's very doable. Think Jim said in his remarks, we expect grocery trends could be up in the mid-twenty percent for this year. That's on a combined historical basis, not just coming off of the as reported GAAP number pre RACOM. So I think that's pretty strong relative to our peers.
They haven't done a line by line, but we're pretty happy with being up 20% on a combined historical basis. That's pretty in line with where we've been the last couple of years, given that we had very few renewals this year. Said that we're seeing some sub losses like everybody else, but our OTT growth is really strong and the net net is that our growth is doing better than expected. So I think we're in better shape now retrans than we even thought we'd be last year at this time. So I'm not sure what the concern if you're asking are we slowing down That's not
Speaker 8
a concern, Kevin. My point is that you guys are beating by a pretty big margin and it seems like it's going to flow through the rest of the year. So I mean to get to your original guide there would have to be some kind of weird step down in the back half of the year that I don't think you No. Guys are
Speaker 2
Retrans can sometimes be lumpy And that's kind of what we're we said about 20% or so gets you a little above $800,000,000 in gross for the year. But payments lie. We have some folks who just pay late. We have some folks who missed a month and we're getting caught up. We've had some audits that turned up, some underpayments.
So that stuff's just a little bit lumpy. So we're still confident the year is going to be 20% or better increase on growth on a combined historic basis. So we think that's pretty strong.
Speaker 8
Yes. For the record, Kevin, I think we all think that your retrans is pretty damn strong relative to everybody else. Anyway, just let me shift to core. Given kind of the auto softness with CrowdOut obviously or benefits from displacement in the back half of the year, I think you guys still said you thought core would be up. Has that changed at all given sort of the incremental squishiness in the auto category?
Speaker 4
I think local has an opportunity to be up a little bit by the time we get through a full year given national off to a slow start and national is going to reflect the auto more than the local will, that's probably not going to show growth year over year. But I think core has an opportunity still, especially as hopefully things will pick up later in the year. And as you mentioned, comps are easier, especially in Q4, that local could still be showing in the green territory by the time we get to the end of the year.
Speaker 8
Got it. Perfect. Thanks guys.
Speaker 1
Thank you.
Speaker 0
Your next question comes from the line of John Kornreich from Gray Media. Please go ahead. Your line is open.
Speaker 5
Yeah. Hi, Jim. Tell me again, what was that $770,000,000 number you threw out? Was that trailing twenty four months?
Speaker 4
Yeah. Trailing, eight quarter, Yes.
Speaker 5
Through the end. And on a normalized basis, would you say that the conversion rate of free cash flow to EBITDA should be south of 50% or north of 50%?
Speaker 4
John, actually I don't think I've thought about that quite like that.
Speaker 5
I mean, then that $7.70 is the free cash flow in the $400,000,000 range, which is north of 50%.
Speaker 4
I'd say it a little differently, and it depends on, you know, you're talking I mean, if you're talking a two year blended so you get the full political cycle.
Speaker 5
Right. Yes. Absolutely.
Speaker 4
It's probably definitely well into the 40% conversion rate and maybe getting closer to 50%. But it's very strong. As we've talked about many times, you can see it in the historical numbers that we've published in several investor decks. And obviously with the $770,000,000 you really need to add back about $42,000,000 or $46,000,000 of OTO that the definition doesn't let me add back. So you're north if you do that, you're north of 800,000,000 I got $220,000,000 of cash interest.
Can pick that up right from the balance sheet in the queue. We have $14,000,000 of required debt amortization every year, 75,000,000 of CapEx roughly we've talked about several times with people, dollars 52,000,000 of preferred dividends and then it's what's the cash taxes over the next couple of years. And this year we're saying it's and the Q says we're expecting maybe 13,000,012 million $13,000,000 of cash taxes. Obviously, next year it gets up significantly higher with the political, but we still have NOL to use up next year as well and probably into the year and year after that to some extent. So you get very strong free cash flow generation out of this company on a two year basis.
Speaker 5
I just did the quick numbers in response to what you said and it's definitely north of 50%. I'm what I'm getting at, I'm I'm trying to figure out why this stuff
Speaker 1
is very clobbered. I like your math. Keep it up.
Speaker 10
Yeah.
Speaker 5
What could the what should the normalized tax rate be in the next two, three years? Cash tax rate? It should be
Speaker 4
This year we're especially low and I won't I mean, just because of basically some prepayments last year that didn't need to that we actually would get the benefit of this year. I think next couple of years in an off year, in a non political year, you're probably in the mid-30ish range in cash taxes. In a political year, obviously that's going to depend a little bit on the political revenue. But as we've all talked about many times, 2020 especially will be a good year, when we can all argue how good is good. I think you're probably in the 60,000,000 $70,000,000 $75,000,000 range.
So on an average, 40,000,000 to 50,000,000 maybe.
Speaker 5
Okay. Lastly, you used to put in your slide shows the breakdown of revenue between networks. Can you at least roughly give that to us now on a pro form a basis?
Speaker 4
We haven't done that for a while, but I'd say CVS and NBC probably accounts for about two thirds in total, and they're split pretty much equal. FOX revenue is maybe 10 high single digit percentage, maybe 10%. It's not big even with the new company combined. And the other piece then would be your ABC that I'm trying to do math in my head, but I think that probably accounts for about high teens percentage, 20 ish maybe.
Speaker 5
Okay. So, I mean, if if the FOX renegotiations go pretty much as planned, is that how we get the 25% increase in gross in in net in net retrans?
Speaker 4
No. We are talking about gross increase in retrans. We have not given any guide for net retrans yet this year, and we won't until we get through the Fox negotiation.
Speaker 5
Okay. Even though Fox is 9% of revenue? Correct.
Speaker 7
Okay.
Speaker 5
That's it. Thank you.
Speaker 2
Thank you, John.
Speaker 0
Your next question comes from the line of Jim Goss from Research. Please go ahead. Your line is open.
Speaker 10
Thanks. Maybe this is Kevin or possibly a Jim. But in terms of the sub stabilization, if you will, with OTT versus exceeding loss in subscriber levels. Are you implying that that's also true in financial terms that they're pretty much the give and take is pretty much even on both sides so that it's not just in terms of your viewers and subscribers but it's also in the financial impact?
Speaker 2
Jim, we don't know how at this point to guess how many OTT subs are cord cutters versus people who already have an MVPD sub versus people who never had an MVPD subscription. What we have said is that we're largely indifferent as to how a sub gets to us, whether it's through traditional or non traditional means. The MVPD, I would say the non NVPD sub base is certainly growing a lot faster than expected and so we're pretty happy with that. But we haven't done any and I don't know how we would do any kind of analysis aside whether it's a we're financially better off or not because there's too many assumptions as to where these subs are coming from.
Speaker 10
Is the retrans you generally negotiate going to be based on a certain value or certain markets and not on a per sub basis such that any impact on a change of that subscriber base wouldn't happen until the next renegotiation?
Speaker 2
I'm not sure if I understand the question directly. All of our MVPD contracts pay a per sub per month fee the type And of channels that are being that's I think consistent in probably every single retrans contract across the industry.
Speaker 10
Okay. And the other question regarding some of the programming you had with Greta Van Susteren and Opry, I think Jimmy indicated to Marcy that it was somewhat immaterial in terms of cost. I was wondering what the primary purposes were of the programming. Is it for branding to the extent you syndicate some of the programs? Or are there is it to create some programming for local ad sales rather than purchase programming from others?
And if you have any further ambitions, I wonder if you could frame that out in terms of programming.
Speaker 2
I I would say the channel with Opryland, we're doing is a 20 fourseven channel that we're going to launch on multicast networks. We're doing it because we think we're going to make money. Remember, PAD comes from a company that had launched multicast channels in the past and done pretty well with it. So we're hoping to repeat that success. Greta is a show not a channel.
Greta has been really valuable to our local TV stations and their franchises already, But creating a political show is sort the next step in our relationship with her. And we're doing that again because we think we're going to make money on it. And it's a weekend program, so it's not like we're looking to save money on traditional game shows or judges shows. This is a weekend political show. So it's going to be on it's not really to place it's not replacing content that we're buying from syndicators.
It's something we think will be good for the audience, good for our demo and again, at the end the day, we're spending a little bit of money and think we're going to make it back. Neither one of these is a big material investment or a material cost. But we're doing them we do things because they make money.
Speaker 5
Okay.
Speaker 10
That's it. Thanks.
Speaker 2
Great. Thanks. Thank you.
Speaker 0
Your next question comes from the line of Michael Lubitsky from NOBLE Capital Markets. Please go ahead. Your line is open.
Speaker 11
Thanks and congratulations on your quarter. Can you give some color? You gave guidance in terms of the second quarter in terms of corporate and administrative expenses as well as production expenses. Is the second quarter then a good runway for what we should expect for the balance of the year on those line items?
Speaker 4
The production expenses are very seasonal. If you go look back, I mean, quarter basically, the production company, think about it with the collegiate sports schedule and the professional sports schedule. First quarter, you've got basketball. Fourth quarter, you've got football. Second and third quarters are pretty lean both in the revenue lines and the expense lines and it's just the natural flow of that business.
I think your the corporate line in Q2 to some extent would be a reasonable indicator for Q3. We're certainly working on some synergies but I think Q4 corporate line usually runs a little bit higher than Q2 and Q3 just because of seasonality and incentive comps locking the final numbers.
Speaker 11
Got you. Thanks for that. And I know that you plan to focus on digesting the Raycom acquisition but I also know that the company always thinks about the next acquisition given that you likely start to see the developing relationships quite early on. Can you discuss the pipeline for future acquisitions and the nature of those, whether their targets might be larger or smaller in nature, maybe geographic areas or affiliations or areas of interest there?
Speaker 2
Yeah, I mean this we don't have the luxury of choosing from among a large number of data points and saying that we want to now we're going to focus on the state of Oregon or we're going to focus on CVS affiliations. There's a limited number of markets and so by definition, limited number of number one and number two TV stations that would meet our criteria. Of those, lot of stations are already owned by a network or one of our larger peers. So our pipeline are the number one strong number two TV stations that are not owned by a conglomerate or another large peer who's not selling. Their decisions as to when to exit are driven entirely by factors really beyond our control and beyond our visibility.
So we have seen in our 30 some transactions over the last few years that people decide to sell based on generational issues, family issues and has nothing to do with where the stock market is or where the networks are at or how the local football team is doing. It is entirely up to sort of family dynamics and so we are at their mercy. We keep close with lots of folks and we'll continue to
Speaker 7
do
Speaker 2
so. The pipeline is kind of the same group of stations that we've talked about for a long time now. When people decide to sell, it will be up to them. So we're always looking at stuff and if can if something makes sense on a dollar value and it's in a new state for us, that's we're not going to walk away. If it's in a state we're already at, we're not going to walk away because we're already sort of in that market.
We're really just looking for the quality stations and over the long term, it will all work out and we'll have an even bigger portfolio than we have today. But we don't have, it's not like there's 20 stations for sale and we're just picking on we want CBS affiliates in the state of Oregon just to make something up. It's really we're waiting for the right opportunities. As Jim has said many times, we plan to be opportunistic but also very patient.
Speaker 11
Got you. And in terms of just how active the pipeline is at this point, do you feel that it's likely that you will make acquisitions, you know, this year? Or do you think it's just something that you have to assess, like you said, whether or not these families might decide to sell?
Speaker 2
I would expect there will still be acquisitions this year.
Speaker 11
Great. Okay. That's all I have. Thank you.
Speaker 0
Your next question comes from the line of Dennis Leibowitz from ACTI Partners. Please go ahead. Your line is open.
Speaker 12
Thank you. When you released the fourth quarter, you made an estimate of free cash flow preliminarily for 2018 of $500,000,000 to $525,000,000 I wonder if that was refined specifically. And if you combine that with 2017, you would have gotten somewhere over $4 a share in free cash flow per share. And aside from those numbers, I wondered if you combined 2018, 2019 in your outlook, would that be more or less?
Speaker 4
We have not yet updated that free cash estimate for 'eighteen. We will be doing so over the next couple of weeks and we'll be updating our investor presentation and we'll post that within a couple of weeks as well. But I think that number is still in the right zip code. We will lock it down to a final calculation though in the next couple of weeks. I don't disagree with your math about the 'eighteen estimate and 'seventeen.
That sounds about right to me. I think. I didn't quite catch the piece of the question about eighteen-nineteen?
Speaker 12
Yeah, would it be at least that high for eighteen-nineteen? Then presumably it'd be higher for '20 when you throw in political and retrans.
Speaker 4
It could without having 2018 locked down yet, and we haven't commented specifically on 2019, it might be a little bit higher. Certainly, net retrans growth 'seventeen to 'nineteen is very nice growth. I think your core 'nineteen to 'seventeen is probably not vastly different, maybe up a little. But it's really the key would be the growth in net retrans, so that probably makes it a little bit higher. Political in 'nineteen would
Speaker 0
expect it to be lower than 2017 because in 2017 there were some off year governor races that don't occur in 2019. So it's not quite a straight apples to apples comparison. And if you extend it to
Speaker 12
nineteen nineteen twenty, wouldn't you assume it would have to be higher because of political in 2020 and growth in retrans?
Speaker 4
Certainly retrans will grow. We have not said we've not given a number for 2020 political other to say that we think it will be a very strong year. So does that equal 2018, which was a very strong year? Is that a little bit better than 2018? Mean everybody can have their own opinion on that.
I think 'nineteen-'twenty combined free cash flow though will again be very significant for the company as we talked about a little bit earlier. Okay.
Speaker 12
Thank you.
Speaker 0
And there's no further questions at this time. I will now turn the call back to Mr. Hilton Howell for closing remarks.
Speaker 1
Thank you very much, Kelly. And I just want thank all of you for being on the line today. We're exceptionally pleased with our quarter's results and look forward to Q2 and the rest of this year. It's going to be an exciting time. Talk to you soon.
Speaker 0
This concludes today's conference call. You may now disconnect.